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7.29.2012

U.S. Automakers See Their Cars Zip in China

The Atlantic, July 19, 2012

Crowds swarmed the Beijing Auto Show in April but they thronged thickest around foreign-made cars, illustrating the challenge ahead for domestic Chinese manufacturers.

About 20 million new cars are expected to be sold in China this year, with sales in May up almost a quarter year-on-year. The market is projected to grow to between 30 million to 40 million by 2020 in a nation where car ownership is still low - in 2009, there were just 47 cars per thousand people compared to 802 in the US. According to these predictions, there will be more cars in China in 2030 than there were in the entire world in 2000.

"The May results are a reflection of the fundamentally strong growth drivers that exist in China - mainly continued urbanisation and growth of the middle-class population, recovery from last year's supply chain disruptions, and pent-up premium car demand," Bill Russo, head of Synergistics auto consultancy in Beijing and a former head of Chrysler in China, told The Financial Times.

But this picture - rosy for carmakers, alarming for environmentalists - masks a deep divide that is seeing international brands eclipse their Chinese counterparts. Thirty years after China signed joint venture agreements with General Motors and Volkswagen, Chinese brands continue to occupy the competitive low-end market while high-end foreign brands dominate the soaring luxury car market.

Sales of BMW and Audi cars in China in May were up 31 percent and 44 percent respectively. To meet demand, BMW aims to quadruple mainland production capacity while Audi sales head Peter Schwarzenbauer said Audi only established dealers in 187 out of 304 Chinese cities with a population of a million or more, leaving plenty of room for expansion.

Beijing is doing its best to protect its auto firms, banning government departments from buying foreign cars for their official fleets (black Audis with tinted windows are a particular favorite of government officials)and forcing overseas makers such as GM and VW to develop indigenous brands with their joint venture partners as part of a bid to ensure a more rapid technology transfer to China.

Chinese manufacturers are also attempting to boost their brands rather than simply competing on price.

"Our focus is our product, a car that can provide a better experience, more special than other cars. Personalized services and the driving experience should be a new sales point," Wu Xinfa from Dongfeng Yulong Auto Company told China Radio International.

But persuading a Chinese population that is convinced that foreign brands in general are more stylish and reliable than Chinese brands will be a tough task."The Japanese and Koreans built up global reputations but it took them 20 or 30 or 40 years - and that still did not erode the global advantage of those that existed before," Kevin Wale, head of GM in China, told The Financial Times. "I think our reputation [in China] will last for an incredibly long time."